"The barriers to distribution are huge and growing" for small players, Mr. Sarbit acknowledged. "It's just become more and more difficult to gather assets.

"On a personal note, it's very difficult to manage a company and manage money at the same time," he said yesterday. Industrial Alliance "will allow me to concentrate on what I do better, which is to manage money," he added. "You can't do both and do a good job."

For Mr. Sarbit, who specializes in the U.S. stock market, it's been a struggle to raise money for his mutual and hedge funds. "People are just afraid of the U.S. market ... and now maybe they won't want to own Canadian stocks either."

David Scandiffio, president of Industrial Alliance's mutual fund unit IA Clarington, said it's a challenge for smaller players these days. Smaller companies have trouble finding the time and money to ensure they are complying with the new regulations, he said.

After 3½ years, Sarbit's fund assets only amounted to about $130-million. Mr. Sarbit will continue to manage the $85-million Sarbit U.S. Equity Trust as an IA Claringtonfund. Sarbit Total Performance Trust, a hedge fund, will likely be merged into that U.S. stock mutual fund following unitholder approval.

"This deal is less about the assets that we are acquiring and more about adding Larry's investment [deep value] mandate onto our lineup," Mr. Scandiffio said.

Mr. McCreath said he was approached to do a transaction, but agreed that it's tougher to be a small player in the current market environment. He expects more smaller outfits to do deals with bigger entities.

Paolo De Luca, chief financial officer for C.A. Bancorp, said his firm targeted Waterfall Investments as an acquisition because it is a player "that needs some distribution muscle."

It also has an appealing market neutral hedge fund that "we think is perfect for this type of market. It would never be down 10 per cent as the S&P/TSX has been in the last two weeks."

Phil Schmitt, chairman of the Canadian unit of the Alternative Investment Management Association, agreed the current market environment is making it tough for some hedge fund managers to gather assets.

The publicly disclosed deals do not reflect all the mergers that have occurred because some hedge fund managers merge quietly, and are only telling their unitholders, Mr. Schmitt added.

While some players are being gobbled up, others, like Toronto-based EdgePoint Wealth Management Inc., which is backed by four former Trimark Financial Corp. managers, are now starting up.

"I do expect consolidation to continue, but these things are all cyclical," said independent fund analyst Dan Hallett. "You have this regeneration of sorts where you have people leaving big companies to start more independent, boutique firms. EdgePoint is a great example of that."